Correlation Between Daechang Steel and Tuksu Engineering

Can any of the company-specific risk be diversified away by investing in both Daechang Steel and Tuksu Engineering at the same time? Although using a correlation coefficient on its own may not help to predict future stock returns, this module helps to understand the diversifiable risk of combining Daechang Steel and Tuksu Engineering into the same portfolio, which is an essential part of the fundamental portfolio management process.

By analyzing existing cross correlation between Daechang Steel Co and Tuksu Engineering ConstructionLtd, you can compare the effects of market volatilities on Daechang Steel and Tuksu Engineering and check how they will diversify away market risk if combined in the same portfolio for a given time horizon. You can also utilize pair trading strategies of matching a long position in Daechang Steel with a short position of Tuksu Engineering. Check out your portfolio center. Please also check ongoing floating volatility patterns of Daechang Steel and Tuksu Engineering.

Diversification Opportunities for Daechang Steel and Tuksu Engineering

-0.21

Correlation Coefficient

Daechang Steel  Tuksu Engineering

Very good diversification

The 3 months correlation between Daechang and Tuksu is -0.21. Overlapping area represents the amount of risk that can be diversified away by holding Daechang Steel Co and Tuksu Engineering Construction in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Tuksu Engineering and Daechang Steel is a relative statistical measure of the degree to which these equity instruments tend to move together. The correlation coefficient measures the extent to which returns on Daechang Steel Co are associated (or correlated) with Tuksu Engineering. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Tuksu Engineering has no effect on the direction of Daechang Steel i.e., Daechang Steel and Tuksu Engineering go up and down completely randomly.

Pair Corralation between Daechang Steel and Tuksu Engineering

Assuming the 90 days trading horizon Daechang Steel Co is expected to under-perform the Tuksu Engineering. But the stock apears to be less risky and, when comparing its historical volatility, Daechang Steel Co is 1.53 times less risky than Tuksu Engineering. The stock trades about -0.02 of its potential returns per unit of risk. The Tuksu Engineering ConstructionLtd is currently generating about -0.01 of returns per unit of risk over similar time horizon. If you would invest  842,000  in Tuksu Engineering ConstructionLtd on October 4, 2024 and sell it today you would lose (210,000) from holding Tuksu Engineering ConstructionLtd or give up 24.94% of portfolio value over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Insignificant
Accuracy	100.0%
Values	Daily Returns

Daechang Steel Co  vs.  Tuksu Engineering Construction

Daechang Steel

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Daechang Steel Co has generated negative risk-adjusted returns adding no value to investors with long positions. Despite somewhat strong basic indicators, Daechang Steel is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

Tuksu Engineering

Risk-Adjusted Performance

4 of 100

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in Tuksu Engineering ConstructionLtd are ranked lower than 4 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak basic indicators, Tuksu Engineering sustained solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Daechang Steel and Tuksu Engineering

The main advantage of trading using opposite Daechang Steel and Tuksu Engineering positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Daechang Steel position performs unexpectedly, Tuksu Engineering can make up some of the losses. Pair trading also minimizes risk from directional movements in the market. For example, if an entire industry or sector drops because of unexpected headlines, the short position in Tuksu Engineering will offset losses from the drop in Tuksu Engineering's long position.

The idea behind Daechang Steel Co and Tuksu Engineering ConstructionLtd pairs trading is to make the combined position market-neutral, meaning the overall market's direction will not affect its win or loss (or potential downside or upside). This can be achieved by designing a pairs trade with two highly correlated stocks or equities that operate in a similar space or sector, making it possible to obtain profits through simple and relatively low-risk investment.

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Note that this page's information should be used as a complementary analysis to find the right mix of equity instruments to add to your existing portfolios or create a brand new portfolio. You can also try the Portfolio Backtesting module to avoid under-diversification and over-optimization by backtesting your portfolios.